Since it can take a while before the full impact of economic uncertainty filters down into the stock market, I’m beginning to suspect 2020 could turn out to be another tricky one for investors. Ultimately, we can’t predict but we can prepare. Here, then, are four suggestions what you can do. 

1. Keep some cash handy

To survive a downturn relatively unscathed, it makes sense to think not only about tackling any lingering, high-interest debt but also about what costs you have coming up in the near-term.

Do you have a would-be house deposit currently tied up in investments and intend to buy a property in the next year? If so, it may be prudent to move this money into cash to ensure it doesn’t lose value when you most need it. Do you have sufficient savings to cushion the blow of a period of temporary (but nevertheless unexpected) unemployment? If not, start building an emergency fund for if/when the bad times hit.  

2. Get diversified

If you haven’t checked how diversified your portfolio is, do so soon. It’s remarkably easy to forget the importance of spreading your wealth around different assets, particularly following the sustained period of share price appreciation we’ve experienced since 2009. 

Naturally, what you decide to do with your own investment portfolio will depend on your age, financial goals, and risk tolerance. As a rough rule of thumb, however, those nearing retirement should consider dialing down (but most certainly not eliminating!) their exposure to equities. Younger investors arguably have less to worry about, but it’s still worth asking whether companies held are sufficiently resilient, particularly if they already have shaky balance sheets, or operate in cyclical sectors.

3. Understand market cycles

Bear markets are part and parcel of investing. You can’t avoid them and you’ll never know exactly how you’ll respond until you’ve experienced one. As the great sage Mike Tyson once said: “Everybody has a plan until they get punched in the mouth.“

Notwithstanding this, you can, at least, educate yourself about these things before they happen, if only to gain an appreciation of just how common they are and how long they tend to last for.

According to a study by Yardeni Research, the 36 corrections and bear markets in the US since 1950 have lasted for an average of just 196 days — worth remembering before you aim to push that ‘sell’ button. For more on this, I heartily recommend the writings of investing legend Howard Marks.

4. Buy the dips

As we never tire of saying, private investors should regard market downturns as an opportunity to acquire great businesses at far more reasonable prices. They are, in short, a chance to accumulate. 

This might sound easy, but it’s not. If you’re concerned about the market falling further after purchasing a stock or fund, you may wish to drip feed your money rather than all at once. No one manages to buy at the bottom consistently but, assuming the investment case is solid, averaging-in to a position makes more sense than waiting for a price that may never come.

The post Fear a stock market plunge in 2020? Here are 4 brilliant ways to prepare appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Speaker John Bercow’s decision to rule out another vote on Theresa May’s deal unless it’s sufficiently different from the motion rejected by MPs last week is the latest twist in the seemingly perpetual drama that is Brexit. 

I won’t bother trying to come up with all the different permutations that lie before us (I’m pretty sure MPs aren’t aware of them all themselves yet).

Instead, I’ll just remind you of three things that this sorry farce has reminded us about investing in a crisis. 

1. Don’t bother with timing

It’s now almost three years since people voted over whether the UK should leave the EU. If you’d pulled your money out of stocks very shortly after the referendum, you’d have been very unhappy indeed. After an initial fall, UK shares rebounded strongly, so much so, the FTSE 100 set a new record last May.

Since then, we’ve had both a sustained dip over the second half of 2018 followed by a welcome bounce in prices since the beginning of 2019.  

What does this tell us? Simply that it’s impossible to predict the direction of indexes markets over the very short term. 

As such, it makes sense to drip-feed your money into stocks (and other assets) — known as ‘pound cost averaging’ — rather than trying to time the bottom. 

In addition to relieving you of the need to predict the unpredictable, this strategy also means you’ll be in line to receive dividends from companies that are just getting on with the job. 

2. There will always be another crisis

Regardless of whether you voted to leave, remain, or didn’t vote at all, there will come a time when we can all look back on this period of political drama and (briefly) laugh at how farcical it became. Probably. 

At this point, our jittery nerves will then focus on the next threat to our wealth, such as the scary amounts of corporate debt, the slowing of growth in China, or some ‘unknown unknown’ that’s still to rear its head.

Save not investing at all (which would be a tragedy for your long-term wealth), there’s no way of avoiding any of this. The one thing about crises is that they’ll never go out of fashion.

Aside from continuing to invest regularly to smooth out returns, all Foolish investors can do is ensure their portfolios are aligned with their tolerance for risk. And if the last few months have made you want to hide behind the sofa, there’s an easy way of achieving the latter. 

3. Get diversified

It’s natural to keep a lot of your money in UK-focused stocks given that these companies are familiar to us. However, a ‘home bias’ has its limitations. The more you depend on businesses whose survival is, in turn, largely dependent on the health of a single economy, the greater the risk.

So, while I’m not suggesting moving away from individual stocks, the UK, or both completely, it can make sense to have at least a proportion of your wealth in low-cost trackers or exchange-traded funds that invest in companies around the world.

For those interested, I’ve written about one of the most popular funds here.

The post 3 things the Brexit crisis reminds us about investing appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Early signs suggest they were right, after IHS Markit’s Purchasing Managers Index fell to 47.7 in July, indicating the UK economy’s steepest pace of contraction since 2009. The survey found that both manufacturing and service industries were hit, as output and new orders fell at a record rate.

The fall in manufacturing output and orders is the first since Q1 2013. And though exports enjoyed a boost thanks to the falling pound, the downside is that manufacturers’ import costs have risen sharply.

Post Brexit recession?

Markit’s chief economist Chris Williamson said the fall “was most commonly attributed in one way or another to Brexit,” and that the result suggests a 0.4% economic contraction in Q3, depending on whether we see further deterioration. He added that the “record slump in service sector business expectations” suggests there’s more to come.

What should we do?

Obviously, don’t follow the sheep in the City and sell off everything in sight. No, we should re-evaluate our shares with a long-term view. And in the shorter term, we should be chasing exactly the same strategy as smart investors were doing during the banking crisis and seeking oversold shares to buy.

Which are the bargains?

We should first examine the sectors that have been hit hardest. For example, even if some financial firms may genuinely suffer from Brexit hardship, the market will typically punish the whole sector — even companies that shouldn’t face any problems.

The most obvious one to me is insurer Aviva, which was very quick to respond to the referendum, proclaiming that the result “will have no significant operational impact on the company.” Yet the shares are down 15% since the day and are now on a P/E of only 8.3 with forecast dividend yields of 6%. Tasty.

The other obvious big fallers are the housebuilders, with Barratt Developments down 30%, Taylor Wimpey down 25% and Persimmon down 24%. On P/E ratios of only a little over half the FTSE 100 average and with attractive dividend yields, do they sound cheap? They do to me.

Seek safety

Another approach is to look for shares that shouldn’t be affected whether we’re in the EU or out (though, arguably, that’s something to have done before the vote and before their prices rose).

GlaxoSmithKline, which released results on Wednesday, has already committed to further investment in the UK — and though the shares have gained 17% since the vote, I reckon they’re still good long-term value.

Then you could look at what the top experts have been doing with their investment cash. Neil Woodford has spotted the insurance sector bargains and has snapped up some Legal & General shares, and has also bought into sub-prime lender Provident Financial. He’s also invested in outsourcers Babcock International and Capita Group, both of which have said they expect little overall Brexit damage.

The bottom line is that we shouldn’t see this as a disaster. We should do the opposite and see it as an opportunity to boldly profit from the fears of others, and turn the lemon we’ve been handed into lemonade.

The post What should you do as Brexit triggers sharpest economic contraction in 7 years? appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Alan Oscroft owns shares of Aviva. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

With this in mind, I believe these three growth stocks still have room to run following the Brexit vote.

Huge US dollar exposure

Shares in Shire (LSE: SHP) have already gained 16% this week, but I believe further gains may be in store for the biotech firm.

With demand significantly higher outside of the UK for the kind of expensive therapies that Shire develops to treat rare and speciality diseases, Shire earns over 95% of its earnings outside the UK, with almost three-quarters coming from the US alone. This exposes the company to the substantial fall in the pound this week, particularly against the dollar, which has gained 12% in value against sterling since the referendum.

Underlying fundamentals for Shire are attractive too. With a strong pipeline of new treatments for rare diseases, city analysts expect Shire to report robust earnings growth over the next two years. Even before we adjust for the fall in the value of sterling, underlying EPS was forecast to grow 90% this year, to £2.94. This gives shares in Shire a very tempting forward P/E of 13.5, which is exceptional value for the sector.

Impressive margins

Like Shire, over 90% of Smith & Nephew’s (LSE: SN) revenues come from outside of the UK. The medical equipment manufacturer is a market leader in endoscopy, artificial hips and advanced treatments of difficult wounds, and its competitive advantage is demonstrated by its impressive 14% operating margins.

With a forecast 5% increase in earnings this year, Smith & Nephew’s shares trade at a forward PE of 18.1. Although not necessarily cheap, its shares are reasonably priced for the company given its wide economic moat.

The shares currently offers a modest dividend yield of 2%. But, given that the payout is covered nearly three times by earnings, there’s plenty of room for dividend growth further down the line.

Dividend growth potential

Coca Cola HBC (LSE: CCH) stands out because of its massive dividend growth potential. The Coca-Cola bottling company operates across eurozone and Eastern European markets, and reports its earnings in euros, which means it too stands to benefit from the falling value of sterling. But on top of this, demand for its products is rather non-cyclical, which should mean any potential economic slowdown in Europe would have a limited impact on its sales and earnings.

A recent trading update from the company may be cause for optimism. Growth in volumes remains strong in emerging markets, and the effect on earnings has only been offset by adverse currency movements. But, as currencies have moved in the opposite direction, the underlying strong trend in volumes should now lead to improved earnings.

Furthermore, with the company paying out just 46% of its earnings as a dividend, there’s plenty of scope for further increases in shareholder payouts. Shares in Coca Cola HBC currently yield 2.2%, and are forecast to rise to 2.4% this year.

The post 3 growth stocks still worth buying: Shire plc, Smith & Nephew plc and Coca Cola HBC AG appeared first on The Twelfth Magpie.

More reading

• How much is needed in a SIPP to target a weekly retirement income of £282?

Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Yet still the share price remains stubbornly low — and following the ‘leave’ result in the EU referendum, it’s crashed a lot lower. In fact, since the end of Thursday, Lloyds shares have lost a painful 28%, dropping to 52p. That’s painful for existing shareholders like me, but is Lloyds now a super bargain for new buyers?

Based on current forecasts, Lloyds shares are now on a forward P/E of under seven. Granted, those forecasts will probably be scaled back a little, but we really don’t have any idea of how badly, if at all, Lloyds’ business will actually be affected — although that uncertainty alone is enough to cause panic right now.

Dividends still on track?

Lloyds’ dividend has come storming back since the bank was allowed to resume payments in 2014. The cash only yielded 1% that year, but was up to 3.1% by 2015, and the share price drop has pushed forecast yields above 8% now — again, those were pre-referendum forecasts. Can the dividend be sustained? With final results released in February, the bank announced a special dividend on top of its ordinary dividend to redistribute surplus capital, and stressed its “progressive and sustainable” dividend policy, so even with Brexit on the cards we should assume there’ll be a cut.

PPI repayments are still hanging ponderously over Lloyds, as the bank with the biggest penalties to date. Only last month, the Financial Ombudsman Service revealed that PPI complaints were running at around 4,000 per week. And some analysts are suggesting Lloyds could be set for a further £2bn in repayments — and the bank set aside an extra £4bn as recently as in 2015. There are attempts to put a time limit on PPI claims, but that’s moving slowly and it’s likely to go on for at least another couple of years.

The overhang that is the government’s stake of around 10% is an issue, too. The planned sale has been postponed, but it will all be sold off in due course — and the prospect of so many new shares coming up is certainly helping hold back the open market price.

Putting aside Brexit for a moment, the rest of Lloyds’ fundamentals made the shares a firm buy for me, so what do I think now? Well, the net result has been huge uncertainty over Lloyds’ future performance, and in the words of Aviva boss Mark Wilson, “uncertainty is kryptonite to business“.

Maximum pessimism

But uncertainty can also be a great boon to long-term investors who can exploit it to snap up bargains, and I’m again drawn to Neil Woodford‘s words in the immediate aftermath of the referendum in which he opined that “it is not as negative a development as the market’s initial reaction appears to imply“.

And as he also told us that “In the longer term, it is my view that the trajectory of the UK economy, and more importantly the world economy, will not be influenced significantly by today’s outcome“, it’s clear that Mr Woodford’s strategy of investing in long-term cash-generative companies remains unchanged.

So if you’re not as risk averse as all those shorter-sighted managers, whose horizons barely extent beyond their next quarterly reports and how good they’ll look in the short-term market, then I say Lloyds shares are silly-cheap now that we’re surely at, or very close to, the point of maximum pessimism.

The post A great new opportunity to buy Lloyds Banking Group plc on the cheap? appeared first on The Twelfth Magpie.

More reading

• Is there any value left in Lloyds shares now they’re over £1?
• Prediction: this UK growth stock will outperform Lloyds shares over the next 5 years
• Barclays, NatWest or Lloyds shares: which is the better pick for a UK retirement portfolio?
• Here’s how much I think Lloyds shares will be worth by the end of 2027
• How to target a tax-free passive income of £1,275 a month on top of your State Pension

Alan Oscroft owns shares of Aviva and Lloyds Banking Group. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Soaring gold price

The price of gold rose by 5% today to $1,330 an ounce, its highest level for more than two years, as investors sought refuge in the shiny stuff following the surprise Brexit vote. The precious metal is widely considered to be a safe haven asset, and gold price movements have historically correlated well with risk aversion and market uncertainty.

I’m unsure about where the price will move from here, but I’m confident that the uncertainty is not going away any time soon. Britain’s negotiations to leave the EU and form a new relationship will likely take many years, which should make for a positive outlook for gold prices. It should also mean that gold mining stocks, such as Randgold Resources (LSE: RRS), will be a great defensive play against further volatility in the markets.

In addition to the soaring gold price, the 8% drop in the value of the pound against the dollar following the referendum result creates a double whammy benefit for London-listed gold mining stocks, as the falling exchange rate further compounds the surge in the commodity price. This means, in sterling terms, gold has risen in value by 13% today.

Randgold Resources is a good pick because it benefits from low production costs, which gives it a wide margin of safety. With an average total production cost of around $700 an ounce, its operating margins are as high as 47% with gold prices at their current levels. Its shares rose by an impressive 12% today, and I think further gains are possible, given the uncertain future.

Search for safety

Defensive stocks have fared much better than cyclical ones, as investors rush to safety.

National Grid (LSE: NG) is one of the most defensive stocks on the market, because as a regulated monopoly in the electricity and gas distribution sector, it is largely unaffected by changes in energy demand and volaility in commodity prices.

With a beta of just 0.32, the firm is rather less-cyclical and generates steady free cash flow year after year. This means the stock pays very reliable dividends, which makes it a great investment for income-hungry investors.

What’s more, the firm’s regulated inflation linked revenues means it offers solid protection against inflation – it’s dividends are inflation rated too – with the company promising to increase dividend payments by at least RPI inflation each year “for the foreseeable future”. National Grid currently yields 4.5%, with its shares up 1% today.

Weaker pound

British American Tobacco (LSE: BATS) reports its earnings in sterling, but earns an overwhelming majority of its revenues outside the UK. The 8% decline in the value of the pound will no doubt prove an immediate boost to the sterling translation of its foreign earnings.

A long-time favourite for dividend growth investors, the tobacco giant has a strong track record of delivering robust dividend growth, and has been a reliable growth story in difficult economic circumstances. I’m confident that its outlook will not have changed dramatically following the EU vote, and it seems the market agrees. At the time of writing, shares in British American Tobacco rose 4% to 4,450p.

The post Why are Randgold Resources Limited (+13%), British American Tobacco plc (+4%) & National Grid plc (+1%) bucking the Brexit downtrend? appeared first on The Twelfth Magpie.

More reading

• Double a state pension thanks to dividend shares? Here’s how it could be done
• Down 15%! Is National Grid’s share price really a bargain right now?
• How much second income am I aiming for with £20,000 in this superb FTSE 100 dividend star?
• 3 British dividend stocks to consider for passive income this summer
• How much could a £25,362 Stocks and Shares ISA be worth in 10 years?

Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The FTSE 350 has been down by as much as 9% today but in the last couple of hours has staged a comeback of sorts. Therefore, in the next hour anything could happen, with there being the potential for a return to being 9% down (or more), or a further recovery as investors realise that not all FTSE 350 companies are likely to be hurt by Brexit.

In fact, nobody knows what the impact of Brexit will be on the UK economy, or on the EU and global economies. That’s because it’s an unprecedented event and there are simply no facts available to deduce how much of a negative (or positive) effect it will have on company earnings and the outlooks of FTSE 350 stocks.

Things can only get…?

However, what can be safely said is that Brexit is causing huge uncertainty and this is unlikely to go away any time soon. As such, there’s the scope for things to get worse before they get better for the FTSE 350.

For starters, the UK now needs to appoint a new Prime Minister. This process is likely to be completed by October and while a General Election may be on the cards, it could be just a case of the Conservative party simply appointing a new leader. Either way, it causes uncertainty among investors and is likely to have a negative impact on investor sentiment, which is likely to cause the FTSE 350 to come under pressure over the coming months.

Similarly, the UK’s exit from the EU must be negotiated by the new Prime Minister. David Cameron has said he won’t invoke Article 50 of the Lisbon Treaty, so the two-year (or possibly longer) process of negotiating the UK’s exit from the EU won’t start until later in the year at the earliest. This could be a long, drawn-out process that causes yet more uncertainty for investors and has a negative effect on the FTSE 350’s price level.

Possible comeback

Of course, the FTSE 350 could also stage a strong comeback following its short-term fall. Many of the companies listed in the FTSE 350 are international and generate the minority of their sales and profits from the UK economy. Therefore, with the US and Chinese economies continuing to offer upbeat growth prospects in the long run, the FTSE 350 could be more heavily influenced by the global rather than local outlook in terms of the UK’s negotiations with the EU and its own economic performance.

Either way, investors in the FTSE 350 should get used to high levels of volatility. Having paused for breath after the EU referendum, attention will soon turn to the US election. This also offers the potential for a highly uncertain outcome. Buying opportunities may come along, so while short-term falls in the FTSE 350 may test all of our nerves at times, in the long run they could be opportunities to buy high quality companies at majorly discounted prices.

The post The Brexit effect: How low will the FTSE 350 go? appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Clearly, the outlook for the UK economy is now much more uncertain than it was just a handful of hours ago, so companies that are focused on the UK for a large part of their sales and profitability have been hit hard. Similarly, companies that operate mainly outside of the UK haven’t been hit anywhere near as hard, with some stocks that operate exclusively outside of the UK and EU not posting significant share price falls.

Drilling down further into different sectors, it’s clear that defensive industries are likely to perform well both in the short run and the long term. In the short run, there appears to be a flight to safety, with tobacco companies and healthcare stocks seeing minor share price falls (and in some cases share price rises) as investors seek out companies that are likely to prove resilient in the face of significant uncertainty.

And in the long run those same sectors are likely to perform relatively well too, since even if Brexit sparks a global recession, tobacco and healthcare companies are likely to record strong sales and profit growth. That’s because their performances as businesses are less positively correlated to the performance of the wider economy than is the case for the vast majority of the UK stock market.

Questions, questions

In terms of the sectors that are set to be hardest hit by Brexit, cyclical industries are likely to be hurt today and also in the long run. For example, retailers and sellers of consumer discretionary items should be among the hardest hit companies because sterling has already begun to plummet and this could cause inflation to rise due to imports being more expensive. In turn, interest rate rises may be required to curb higher inflation. But with a weaker currency also making UK exporters more competitive and thereby giving a boost to the UK economy, in that sense, the requirement for lower interest rates may be somewhat reduced.

This increase in interest rates would clearly hurt consumer confidence and therefore is likely to cause retail and consumer discretionary shares to fall. Similarly, a fast-rising interest rate could cause defaults on debts to rise and mean that demand for new loans falls. This would be likely to hurt banks and other lending companies, while housebuilders and estate agencies are also likely to be squeezed as housing affordability declines due to the higher cost of borrowing.

Travel and leisure stocks are also likely to endure a difficult period as consumer spending faces an uncertain period, while media and telecom companies may also decline due to reduced spending by consumers and businesses as many people and companies adopt a ‘wait and see’ attitude towards investment. Similarly, support services companies that rely on government contracts could also fall in value not just because of Brexit, but also because of the instability in government now that David Cameron has announced that he will step down later this year.

Clearly, this is a challenging time for investors, but the old rules still apply. Buying high quality companies in a range of sectors and that offer a diverse geographical exposure seems to be a sound strategy. And with Brexit now set to dominate the outlook for some time, there may not be a need to pile-in just yet.

The post Which sectors will be hardest hit by Brexit? appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Of course, high volatility has been present in the last week, with the FTSE 100 recording a stupendously large gain on Monday following polls that showed that Remain was gaining ground in the EU referendum. In fact, the FTSE 100 was up by as much as 3.6% on Monday and this shows that if the UK decides to stay in the EU today, then share price gains could be on the cards tomorrow and into next week. That’s because investors are likely to have priced in the short-term risk of a Brexit to at least a certain degree in recent weeks and months.

Similarly, a vote to leave the EU today would be likely to cause a sudden drop in the FTSE 100’s price level. That’s not necessarily because leaving the EU is a bad idea in the long run, but rather because it would inevitably lead to a degree of uncertainty in the shorter term as the ‘divorce’ between the UK and the EU is arranged.

Other risks

Clearly, the result of the vote is finely balanced, but either way volatility is set to be a feature of the coming days as investors react to the outcome. However, even once the EU referendum is done and dusted, the FTSE 100 is likely to remain exceptionally volatile since there are a number of other risks just waiting to fill the void created by today’s vote.

Another vote that’s on the horizon and that could cause a similar degree of uncertainty in the coming months is the US Presidential election. This has the potential to upset market sentiment at the best of times. But with a new President being elected and the fact that at least one of the candidates has courted controversy in the nomination process, it would be unsurprising for investor sentiment to weaken as the election date gets closer.

That’s not to say either candidate would be a good or bad President, but rather with the potential for major policy change it would be unsurprising for investors to adopt a more risk-off attitude. In which case, the outlook for the FTSE 100 remains challenging and volatility looks likely to remain high, and if not become even higher as the year progresses.

After all, the FTSE 100 is made up of global companies and with the US being the largest economy in the world, it has the biggest impact on the world’s macroeconomic outlook. As such, it may be prudent for investors to keep a lid on the amount of risk they take by seeking out wide margins of safety, checking the balance sheet strength of the companies they own and keeping cash on hand to take advantage of any dips in the FTSE 100’s price level that may come along in future.

The post FTSE 100 volatility is just the start of things to come… appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

As such, whether the UK votes to go it alone or stay in the bloc, investors will still have to contend with a number of risks that could hurt the performance of their portfolios. And with the scope for interest rate rises in the US as well as a new US President due to be elected later this year, there are a number of risks facing global stock markets that need to be considered by investors.

Same as it ever was

The current situation facing the investment community is no different than it ever has been. There are risks that are known about, such as those described above, as well as other risks that simply can’t be foreseen. However, the key takeaway is that share prices have risen in the past while risks of similar magnitude were present and so continuing to invest in high quality companies at fair prices looks set to be a sound investment strategy to adopt in future.

For example, since the FTSE 100 was created in 1984 there have been a number of risks facing investors. Notably, the 1987 crash had a severely negative impact on the UK economy and sent house prices drastically lower. While they took a number of years to recover, the FTSE 100 reversed its decline of 32% within a couple of years before going on to treble in value within the next 10 years.

Similarly, the bursting of the dot.com bubble sent share prices lower by around 50% and yet they recovered in time to then fall once more by a similar amount during the credit crunch. Last year the FTSE 100 rose above 7,000 points to fully recover from the credit crunch despite facing major risks such as a commodity crisis, a slowdown in China and weak growth from the Eurozone. As such, it’s clear that share prices can rapidly rise even though they continually face risks to their future performance.

Due to this fact, it seems obvious that the risks investors currently face shouldn’t deter them from investing for the long term. In fact, waiting for less risk to be clear before investing would most likely lead to investors sitting on the fence for their whole lives while inflation gradually eats away at the real-terms value of their cash.

So, while Brexit may cause a short-term wobble in share prices, we as investors always face a wide range of risks. Finding the highest potential rewards given the circumstances seems to be a sound strategy to adopt now and over the coming years.

The post Why I’m backing Neil Woodford when it comes to the EU referendum! appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?